Suspensions of normal rat bone marrow cells seeded into a plasma clot-diffusion chamber (PCDC) develop into erythrocytic (CFU-E) and granulocytic (CFU-C) colonies in vivo. CFU-E numbers are increased on days 2 and 7 after implantation; CFU-C showed peak values on day 4. The compartmentalized marrow responds to pretreatment before seeding as well as to diffusible factors in perturbed hosts. Increased numbers of erythrocytic colonies are seen with preincubation of normal marrow with erythropoietin as well as in normal marrow implanted into anemic hosts. Endotoxin treated hosts inhibit CFU-E while promoting the growth of CFU-C. Normal bone marrow granulocytic colonies are inhibited when implants are made into Shay Chloroleukemic hosts. The data suggest that alterations in the development of normal hemic cells in this leukemic model are due not only to "crowding out" effects, but also to diffusible factors inhibiting the proliferation of normal progenitor cells.